Question

At the end of the current year, Bamboo Co. included $1,420,000 of recent purchases still in transit shipped F.O.B. Destination in their ending inventory. How will including this value affect Bamboo Co.'s financial statements?

		COGS will be too low.
		Net Income will be correct.
		Ending Inventory will be too low.
		It is impossible to tell from the information provided.

Answer 1

Purchase of $1,420,000, FOB destination were still in transit, but these were included in the ending inventory.

In case of FOB destination, ownership of the goods transfers to the buyer only when goods reach to the buyer.

Thus, goods in transit cannot be considered as part of inventory of the buyer.

Including such goods in the ending inventory will overstate ending inventory and thus cost of goods sold will be understated and Net income will be overstated.

First option is correct.